Conventional Bonds vs. Islamic Bonds (Sukuk)

Conventional bonds include corporate bonds sold by corporations and Treasury bonds sold by the government. These are considered debt investments.

Basically, the investor is making a loan to a corporation or the government. The investor will receive a principal payment after the bond matures, or expires, but will also receive regular interest payments during the life of the bond. Because of these interest payments, or coupon payments, conventional bonds are not considered halal, or permissible, investments according to Islam.

There is another option for Muslims, though, called sukuk. Sukuk are sometimes called Islamic bonds. Sukuk are typically sold by foreign governments or companies. As with conventional bonds, these governments and companies sell sukuk to raise capital, promising to pay back the principal amount, but they also pay out small distributions during the life of the sukuk. These aren’t fixed or guaranteed amounts, so technically it’s not an interest payment.

Sukuk are completely asset-backed, and those assets are being used to generate the income that allows for the distribution payments. Additionally, there is shared risk between the entity selling the sukuk and the investor.

Sukuk are considered a capital preservation investment. Sukuk provide a great way to diversify one’s portfolio so you have money invested in something other than the stock market. They won’t have high returns, but are relatively safe and definitely a better option than letting your money sit in the bank and lose value because of inflation. If you are setting aside money for a down payment on something or a college education, sukuk might be the right choice for you.

To learn more about sukuk and how to invest in them, check out my book, Open the Door to a Wealthier Life, available on Amazon in paperback and Kindle format. Thanks for reading.

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